A brokerage has initiated coverage on this ASX listed neo-lender with a buy rating and a price target 17% above its current trading price. We take a look at the coverage and the company.
WISR rated a buy
Moelis Australia has initiated coverage of WISR Ltd (ASX: WZR) with a buy rating and a 20% target. Shares in Wisr have already quadrupled in value this year. Currently trading at 17 cents per share, Wisr shares are up from 4 cents at the start of the year.
Wisr advertises itself as Australia's first neo-lender and offers personal loans of $5,000 to $60,000 on 3, 5, and 7-year loan terms. Wisr's average loan size is $25,000 with a loan term of 4 years.
Moelis states: "the fintech lender is currently experiencing record growth as its innovative sales & marketing initiatives come to fruition and it transitions to a significantly more profitable loan funding model."
Wisr's loan originations have grown from $3.6 million in FY17, to $18.1 million in FY18, to $68.9 million in FY19.
A vision of financial wellness
Wisr brands itself as having a vision of improving customers' financial wellness. As Moelis points out, this unique, trusted value proposition allows Wisr access B2B2C channels such as employers, health insurers, and superannuation providers who can distribute Wisr products to members. Wisr@Work, a workplace financial wellness program, and Wisr App, a debt reduction tool, were launched in 2019. These allow for low cost customer acquisition.
A critical mass
According to Moelis, Wisr has reached a critical mass where it can transition to an on-balance sheet loan funding model that will improve loan economics. Previously Wisr used a predominantly capital-light funding model through off-balance sheet funding structures, which allowed the business to scale from a capital allocation perspective. Wisr has now launched a warehouse facility with NAB, which will allow it to triple loan economics, generating a significant uplift in earnings from Q2 FY20.
A share of the market
Moelis estimates the personal loan market in Australia is worth $50 billion in annual originations and is currently dominated by the big four banks, with digital lenders representing only 3% of the market. In 2018 digital lending held 38% of market share in the US and 25% in the U.K. There is potentially scope for a similar take up rate in Australia.
Moelis estimates that Wisr currently accounts for 0.27% of the personal loan market. Its key difference to competitors is its stated purpose of improving financial wellness of consumers, which opens up additional distribution channels. This will help Wisr capture an estimated 0.69% of the market by FY22 according to Moelis.
An intelligent credit engine
Wisr utilises an intelligent credit engine to provide for highly automated credit decisioning. The credit engine utilises customer transaction data to automatically verify income and liabilities, identify undisclosed liabilities, and gain a deeper understanding of customers. Credit quality improved in 2019 with 90-day delinquencies declining from ~2.25% to ~1.60%. This allows for low cost origination and efficient scaling.
FY19 results
Wisr's revenue is predominantly derived from loan establishment fees and management fees from servicing loans sold to third parties. Operating revenue increased 91% in FY19 to $3.04 million, up from $1.6 million in FY18. A net loss after tax of $7.7 million was reported in FY19, above the net loss of $6.2 million reported in FY18. This was attributed to forward investing in the Wisr ecosystem to position the company for long-term growth. FY19 was focused on creating the neo-lender model and building a strong brand that resonates in the market. In FY20, Wisr is looking to scale.
The first $150 million
In November, Wisr marked its first $150 million of loans written. The first $50 million took 45 months to write, the second $50 million more than 8 months, and the most recent $50 million less than 6 months. Loan originations have shifted upwards in 2QFY20. Daily loan settlements in November were up 105% compared to the previous year. Wisr is now headed towards hitting a run rate of $150 million originations per year.
Andrew Goodwin, CFO said:
The demand from Australian consumers for fairer, smarter lending is only increasing. Our ability to offer loans through a purpose-led model is proving to be a real differentiator in the market. We see a long runway of growth and the loan book numbers Wisr is achieving certainly support this.
Wisr products
Wisr currently offers unsecured personal loans and secured vehicle finance loans. Unsecured personal loans range in terms from 3–7 years and from $5,000 to $60,000. Interest rates can range from 7% to 18%. Vehicle loans were launched in 1QFY20 and are available at rates of 5–14%. Income secured loans are set to be launched in FY21.
The risks
Moelis see the risks to Wisr's business as competition from both traditional major and regional banks, but also competing fintechs and neo-lenders. General macroeconomic risks could also impact the business, for example, if loan volumes decrease or loan losses increase as the result of a recession.
Wisr may also face risks trying to scale the business profitably – the ability to attract and process large volumes of loan applications efficiently will be key. Credit decisioning will also be an important factor; credit quality should be consistent or rising bad debts could become an issue. Finally, the business must execute across its sales, marketing, and product management functions.
The outlook
Wisr reports that there has never been a better time to be a fintech operating in the consumer lending market. Local influences such as the Royal Commission are providing tailwinds as major banks pull back from personal lending. Customers are increasingly turning to the ease of experience and favorable rates available from online lenders. Regulatory changes such as Open Banking and positive credit reporting are also levelling the playing field for non-major lenders such as Wisr.
Foolish takeaway
Wisr is a fintech-slash-neo-lender to watch. Its unique brand proposition has led to rapid growth in loan originations over the last 3 years. Now the personal lender has reached a critical inflection point in its profitability story.
Can Wisr scale in 2020? Moelis says it can.
